Annual Economic Report 2024: strengthening competitiveness sustainably

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Annual Economic Report 2024

Germany’s economy remains in troubled waters. Predictions show that the labour market remains robust.

Photo: F. Abraham

The Federal Government expects only slight growth for 2024. This was one of the messages from the Annual Economic Report, which the Federal Cabinet has approved. Federal Minister for Economic Affairs Robert Habeck presented the report to the Bundestag in a government statement on Thursday.

Russia’s war against Ukraine continued to be a drag on the German economy, Habeck stressed after the cabinet meeting on Wednesday. “The growth prospects for this year are still affected by this crisis,” he said. He also stressed that the economy was taking longer than had been hoped to overcome the challenges. According to Habeck the impact of the war takes many different forms, including historically low levels of growth in global trade. This hit German export trade particularly hard, he said, adding that other factors included lower purchasing power due to high inflation and lower investments due to high interest rates. He also noted that people were saving more money, while internal demand had dropped.

Tackling reforms

Despite this, Habeck said he was optimistic: “Looking into the longer-term, on the other hand, we can see clear signs that the trends can improve again.” He cited examples of how high wage agreements from last year had led to increased income and higher profits for businesses in Germany. However, the situation remained extremely challenging, Habeck said. “We must do more: tackling reforms, boosting reforms to strengthen and maintain Germany’s competitiveness in a transformed global environment. But we should also do this with a mindset where we all stand together.”

The key findings at a glance

  • Net GDP is expected to rise by 0.2 percent in real terms.
  • Inflation is expected to fall to 2.8 percent. In combination with an expected 3.8 percent rise in disposable income, the Federal Government expects a return to real-terms rises in wages.
  • According to the forecast the labour market remains robust: the number of those in employment is expected to continue to rise with only a slight increase in unemployment rates.

Restrained recovery despite strong internal demand

One key element behind the potential for stronger internal demand is the expectation that members of the public will have more cash again in real terms thanks to higher wages and lower inflation. However, the recovery is being slowed by international crises and high interest rates. In all, it is clear that Germany remains under considerable pressure as a place to do business.

Wide-ranging measures to boost Germany as a business location

The Federal Government plans to counter the current period of weakness with wide-ranging and targeted measures. The aim is to strengthen Germany sustainably as a place to do business. The 2024 Annual Economic Report lists ten key areas of action in this regard:

  1. Boosting investment dynamics through measures such as the Growth Opportunities Act. 
  2. Scrapping unnecessary and disproportionate additional bureaucracy.
  3. Supporting innovation through schemes such as increased research grants. 
  4. Improving availability of skilled workers through tools such as the Skilled Workers Immigration Act.
  5. Improving financing conditions through measures such as the Financing for the Future Act.
  6. Increasing the availability of renewable energy, such as by updating the EEG.
  7. Promoting climate-neutral industrial manufacturing through measures such as climate protection contracts. 
  8. Diversifying foreign trade, such as by expanding trade relations.
  9. Creating affordable and sustainable housing through measures such as new and expanded funding programmes and temporary changes to amortisation regulations. 
  10. Modernising Germany’s transport infrastructure by increasing funding, amongst other things.

Record investments for future prosperity

The Federal Government has put Germany on the right track to ensure prosperity in the medium and long term without placing excessive burdens on the environment. It has also set priorities for public investment. Following the ruling by the Federal Constitutional Court, the Federal Government is investing at record levels of well over 100 billion euros in 2024.

This investment is focused on decarbonising industry and expanding the hydrogen industry, electric-powered transport and all that goes with it, and funding microelectronics.

Under Section 2 of the Act to Promote Stability and Growth in the Economy, the Federal Government presents an Annual Economic Report each year. This year’s report includes projections for overall economic growth in 2024. The Federal Government also comments on selected passages from the 2023/2024 annual report from the German Council of Economic Experts.